Are Your Payment Terms Slowing Payments?

Do your payment terms make your customers want to pay now or later?

If you’re like most business owners, your payment terms are probably, “Due upon receipt” or “Due in 30 days.”

Maybe you chose those payment terms because that’s what everybody else does. After all, if most other businesses operate using those terms, they must be right … right?

But what if those terms are actually getting in the way of payments?

We’re not saying that ‘Due in 30’ or ‘upon receipt’ is wrong. But we do want to offer some food for thought when considering your terms, especially if you’re not fully satisfied with the flow of your accounts receivables.

Let’s start with the “Due in 30” term. Many customers who read that think, “I’ve got time”, which gives them little motivation to pay the invoice quickly. When they weigh all the invoices sitting on their desk, they’ll pick the ones that need immediate attention. Where does that leave your “Due in 30” invoice?

For some customers, “Due upon receipt” is just like saying the invoice is already past due. The danger is that your customer will see that invoice as a problem child right from the start and may therefore put it aside with all the other problems he has to deal with later. That’s the operative word: Later.

So, if it’s possible that those two popular payment policies may actually slow payments, what IS the best way to get paid quickly?

Again, we’re not saying the above terms are wrong. Just worthy of re-thinking. Because some suggest that terms that are between 14 and 21 days solicit just the right amount of urgency. Why?

Many business owners see 2 weeks as an easily attained goal, with just enough urgency to provoke action, but not so much that they feel they’ve already missed the mark. Two weeks is not ‘next month’, nor is it ‘past due’.

There are many factors unique to each customer that shapes his or her payment habits. Most of those factors are not within your control. But if you are dissatisfied with the money flow, you may consider experimenting with a tweak to your payment terms to see if you note any changes.